Apr 2, 2024
Pawn shops serve a unique role in the financial ecosystem. But many Americans may not realize they can also function as early indicators for economic trends.
In the words of pawn shop owner Rick Harrison, these stores often serve as “a canary in the coal mine.”
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That’s because when people start to feel a financial crunch, they may turn to pawn shops for quick cash, leading to an increase in pawn shop business. This uptick can signal the onset of economic downturns, as it reflects a growing need for immediate financial solutions among the general population.
And right now, that canary is looking a little worse for wear.
“The default rate is going up a little bit,” Harrison, whose store, Gold & Silver Pawn Shop, is featured on the History series “Pawn Stars,” said in a recent interview with Fox Business.
Here's what that means and how to protect yourself.
There might be a simple explanation
In his Fox Business interview, Harrison highlighted that in most pawn shops, 95% of pawned items are reclaimed. Yet, he said that he’s seen this percentage “go down a little bit in the past couple of months."
That being said, he refrained from making economic predictions based on this observation, instead attributing the trend to increasing price levels.
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“I believe it's the inflation part. You know, the dollar doesn't go nearly as far anymore, and it's sticker shock when you go to the grocery store.”
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‘A solid asset’
Host Charles Payne also took the opportunity to ask Harrison about the recent surge in gold and silver prices — a pertinent question given that’s a big part of his business.
Harrison’s response first highlighted gold’s function as a means of exchange throughout human history.
He stated, “For 6,000 years, that's the one currency that's still around.”
Moreover, Harrison pointed to the ongoing geopolitical conflicts around the globe — and what that could potentially mean for the yellow metal.
“When you see China and Taiwan, you see Russia, you see the Middle East, people get scared. You know, it's a solid asset,” he said.
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Harrison's reference to geopolitical conflicts underscores gold’s status as a safe haven asset. During periods of uncertainty, such as economic instability, war, or political unrest, people tend to gravitate towards gold.
This is because, unlike fiat currencies or stock investments, gold's worth isn’t directly tied to the performance of a particular economy or the policies of governments. Its physical scarcity and wide acceptance as a form of wealth preservation means that, in the face of geopolitical tensions, gold often retains its value or even appreciates.
Furthermore, gold is viewed as a hedge against inflation, an issue previously raised by Harrison. Unlike fiat currencies, which central banks can issue in unlimited quantities, gold's supply is limited, enhancing its appeal as a store of value.
Gold prices recently broke through the $2,200 per ounce mark, setting a new milestone.
These days, it’s easy to invest in the precious metal. You can own gold bullion, buy shares of gold mining companies or ETFs, or even tap into potential tax advantages with a gold IRA.
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Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
